‘Quiet categories can be good, if you bring the right innovation,’ Kodiak Cakes CEO says

“Entering a high growth category is something that buyers are pretty excited about and there is usually room for entry and the consumers are excited about, and you hear the phrase a rising tide lifts all boats,”​ all of which makes the upside seem large and easy to attain, Joel Clark, CEO of Kodiak Cakes, told attendees at NOSH Live in New York City earlier this month.

But, he explained, it can be difficult to establish a unique positioning in a growing category, without which it is hard to cut through the clutter and protect sales against the eventual flood of me-too products that will crowd the space just as it nears its peak.

“People often underestimate positioning … and to be super sustainable, you have to really make sure that you are differentiated with a strong position,”​ he said. This includes thinking about “how much marketing you need to do, what are the terms, what are the grow rates, what do you have to sell per week, per store to stay around? These are just some of the considerations to think about in high growth categories,”​ and which are often overlooked, he added.

An alternative approach, that may appear to be riskier at first but which offers a more sustainable long-term strategy, is to enter “hibernating”​ category, which is what Kodiak Cakes did when it started in the sleepy pancake space.

“On the surface, this does seem like a riskier way to go. Buyers may not want to meet with you. Some buyers will say they only review the category every two years, or that it is hard to get into, or that consumers don’t want the products anymore,”​ he said.

But, he said, companies can evaluate the risk by asking: “Is it a category problem, or is it that the wrong products were in the category?”​

If it is the prior, it might be better to walk away, but if it is the latter, and a company has “explosive innovation,”​ it could have a fighting chance at being a sustainable revenue driver, he said.

“Quiet categories can be good if you bring the right innovation – strong, unique innovation. It is like creating a category in a way, but it is a product that people already know about,”​ which means less need for education, he said.

“To go into a dead category that is struggling, that is tired, you need to think is the innovation you are bringing going to build the category? If it is just going to steal share, forget it. But if it is unique enough to drive growth and incremental revenue and bring people back to the category – if you can do that, you have a story,”​ he said.

For example, he said for years Kodiak Cakes skated along in the pancake mix aisle, doing fine, but not standing out like it wanted until in 2013 it launched its Power Cakes, which blended the company’s tried and true whole grain pancake mix with an added dose of protein “to fuel you up.”​

“The launch immediately shot to the top of the category. It blew out the previous number one SKU by 20% … and it grew the category so that over the next few years, from 2014 to 2017, our sales [at one retailer] went from $2 million to $10 million,”​ Clark said.

He added almost all of that growth was incremental growth for that retailer in that category as illustrated by a jump in category sales from $13 million to $20 million in the same period.

How to go after ‘dead’ categories​

Based on this success, Clark said, Kodiak Cakes’ strategy now “is to go after dead categories and figure out how to revitalize those categories.”​

This strategy isn’t an easy one to pursue – especially when logic stacks up against it, Clark acknowledged.

But to make it succeed, he said, companies need to build a strong identity with which consumers can engage emotionally, be willing to work hard and position themselves for a lucky break.

“A lot of luck goes into this. I think that has to be admitted. We got a lot of lucky breaks. You need fish to jump in your boat, but to be able to do that you have to be out there fishing. If you are out there fishing, and working hard, and trying everything you can – something will jump in your boat eventually,”​ he said.

Because working and waiting for a lucky break can be exhausting, Clark also said entrepreneurs who want to wake up a hibernating category also need passion, and a plan.

“You need to be cautious, you need to build a rational plan and that needs to make sense. However, sometimes you also need a little bit emotional, subjective, passion”​ so that you can take chances that ultimately defy logic and pay off, he said.